HKSAR v. Chan Ka Hung

Case No.CACC 72/2002
Court
Court of Appeal
Date12 Dec 2003
Judge
Case Document
100%

CACC000072/2002

CACC 72/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CRIMINAL APPEAL NO. CACC 72 OF 2002

(ON APPEAL FROM HCCC 71 OF 2001)

____________________________________

BETWEEN
HKSAR Respondent
AND
CHAN KA HUNG Applicant

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Coram: Hon Stuart-Moore V-P, Stock JA and Suffiad J in Court

Date of Hearing: 18 November 2003

Date of Judgment: 12 December 2003

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J U D G M E N T

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Hon Stock JA (giving the judgment of the Court):

Introduction

1.This is an application for leave to appeal against conviction and sentence. On 6 February 2002 the applicant was convicted of four counts of conspiracy to defraud banks after a trial before Tong J and a jury. He was sentenced to a total of eight years' imprisonment. The offences are alleged to have taken place in 1998. The prosecution case was that this was a letter of credit fraud by which a company sought to generate cash and to falsify profits by obtaining letters of credit on the basis of non-existent underlying transactions, allegedly with the applicant, and to cause the funds paid to the applicant on presentation of documents under the letters of credit to be remitted forthwith by the applicant to the company.

2.The applicant was the person in control of a Hong Kong company called Connection Investments Limited ("Connection") which dealt primarily in timber products. Guangnan (Holdings) Limited ("Guangnan") is a Mainland consortium and Shun Wing Trading Limited ("Shun Wing") was a Hong Kong company which was a wholly-owned subsidiary of Guangnan. Mr Li Min was a deputy general manager of Shun Wing. Shun Wing dealt in foodstuffs, cooking oil and bean products, and normally purchased goods from overseas which were sold on to the Mainland.

3.The prosecution case was that in mid-1998 Shun Wing was severely strapped for cash and needed to pay off debts with cash it did not have; hence the idea to create bogus contracts with which to obtain funds through letters of credit. But, to this end, the company needed willing partners in fraud who would represent that they were the sellers of goods and who would then return funds obtained on the back of documents presented under the letters of credit. The prosecution said that the applicant was one such partner, and that there were four letters of credit which were issued with his knowing and fraudulent complicity.

4.Four counts of conspiracy to defraud followed. The first ran as follows:

" CHAN Ka-hung, between the 1st day of May 1998 and the 31st day of July 1998, in Hong Kong, conspired with LI Min, CHAU Yuet-lan and other persons unknown to defraud Hang Seng Bank Limited ("the Bank") by dishonestly:

(a) causing Guangnan (Holdings) Limited ("the Company") to apply and to utilize credit facilities from the Bank in the form of a Letter of Credit numbered HOS750461CC;
(b) submitting or causing to be submitted false documents to the Bank purportedly evidencing genuine underlying commercial transactions between the Company and Connection Investments Limited;
(c) causing the Bank to grant the Company utilisation of facilities under the said Letter of Credit; and
(d) causing the Bank to release a sum of $2,520,000.00 United States currency to Connection Investments Limited under the said Letter of Credit."

The letter of credit was issued on 26 June 1998 on the basis that there was an agreement that Connection would supply Guangnan with 4500 metric tonnes of rice.

5.The second, third and fourth counts were to the same effect, save for identity of the banks to be defrauded; the amounts; and dates. Thus:

* Count 2 alleged a conspiracy between 1 June and 30 September 1998 to defraud the American Express Bank. The amount to be paid under the letter of credit issued in that instance on 21 August 1998, was US$3.024 million.
* Count 3 alleged a conspiracy directed at the Societé Generale Bank with a letter of credit issued on 10 September 1998 guaranteeing, on the presentation of the required documents, payment to Connection of the sum of US$2.97 million; and
* Count 4, a conspiracy between 1 October 1998 and 31 December 1998. The letter of credit was issued on 10 November and the amount to be paid was US$3.3 million.

6.At the time of trial the sums under the first two letters of credit had been repaid by Guangnan to the respective banks, but the sums outstanding on the last two counts had not.

7.The applicant was arrested by the ICAC on 15 August 2000.

The prosecution testimony

8.The prosecution evidence depended in part on the testimony of Madam Chau Yuet-lan, one of the named conspirators, who provided evidence under an immunity. She was the accounts supervisor of Shun Wing. In mid-1998, Shun Wing had cash problems and could not pay debts and Guangnan was not in a position to assist, so, according to her evidence, Li decided upon a fraudulent letter of credit scheme in pursuance of which he would, periodically, provide her with the name of a beneficiary for the purpose of a letter of credit application and she would insert such details as were required and would prepare a sales contract. The proposed letter of credit would then be sent to Guangnan for its approval. False applications were marked with a star or asterisk on the form, and that mark would ensure that approval was given by Guangnan. In this way, Connection was brought into the picture and Madam Chau from time to time contacted the applicant after funds had been released to Connection and she would ensure the return of the funds by Connection to Shun Wing. There were, she said, two purposes to the scheme: the first was to obtain cash to pay off debts; the second was to inflate profit figures in the accounts. The fraudulent scheme came to light after auditors were called in to examine the affairs of Guangnan.

9.Ms Leung, the shipping clerk of Shun Wing, said that in the case of Connection she was told that there was no need to require a bill of lading. She thought that odd and indeed all four banks had called asking why the applications did not stipulate the need for a bill of lading. She said that she referred those inquiries to Li.

10.Testimony was also given by bank officers from the four banks. Each said that had the bank known that there was no genuine transaction underlying the relevant application the facility would not have been granted. Two documents had been required for presentation in the case of these particular letters of credit: an invoice and a cargo receipt. No bill of lading was required or presented. In his summing up of their evidence, the judge reminded the jury that none of the bank officers called to give evidence were the individuals who approved the respective applications.

11.The prosecution case further relied on interviews given by the applicant upon his arrest by the ICAC on 15 and 16 August. He had told the ICAC officers in the course of two interviews that he had been approached by Li Min who had said that his company was very tight for cash but that cash could be obtained by letters of credit, and that he would open a letter of credit in the applicant's favour, and the applicant had only to type the invoice and the packing documentation; and the cargo receipt would then say that Guangnan had received from Connection amounts of soybeans. Although Li Min's company had the goods themselves, he, the applicant was to pretend that Connection was selling the goods. At the outset he, the applicant, rejected the idea "absolutely", but Li Min pressed him saying that many companies were doing the same and the applicant spoke to his bank about it, although he did not tell the bank that there were no goods; he simply knew there would not be a bill of lading. He, the applicant, had no contact with anyone at Guangnan, and he had no intention to deceive the banks. Maybe, he said, the banks were, objectively speaking, misled, but he himself had no motive to mislead them: "To speak the truth" he said "I could hardly then make ends meet and many companies were [according to Li Min] doing the same." He received 0.1% of the letter of credit sums for his assistance.

The defence case

12.The applicant, a person of no previous conviction, testified himself at trial. He was then aged 39 years. The story he provided to the court differed from that given to the ICAC. It was that Li Min had told him that Guangnan had cash flow problems and wished to sell goods to Shun Wing to ease those problems, and that the applicant could assist by being the middleman in those transactions. The idea was that Guangnan would sell goods to Connection which would sell them in turn to Shun Wing; but the goods would never be sent to Connection and would instead be sent directly to Shun Wing. He agreed to do so because he thought there was some difficulty in the eyes of regulators about two related companies doing business openly with each other. The goods would in fact be delivered, and he, the applicant, understood that there would be an actual sale of goods. He thought that all of this was a normal business transaction. He accepted that none of the transactions represented the business conducted by Connection in its normal trade. In short, his defence was that there was no dishonesty on his part.

13.In the course of his address to the jury, counsel for the applicant, Mr Yuen, suggested that there was a material gap in the prosecution case, namely, the absence of the officers who had themselves approved the letter of credit applications. He submitted that banks would not be defrauded if as a matter of commercial reality the bank did not care whether there were or not goods underlying the application; or where they knew that there were no goods; or where bank officials had been bribed into granting the loans, and that the state of evidence left open any one of these scenarios. We pause to remark as to the last example that deceit is not necessarily a condition precedent to action intended to defraud, and that where a course of conduct is embarked upon by bribing employees to the detriment of the bank, the fact that there has been no deceit of the employees will not preclude the making good of an allegation of conspiracy to defraud: see R v Scott [1975] AC 819. Mr Yuen submitted that there were features of this case that fell short of proof that the banks had been defrauded or that there was a plan to do so, citing in particular the fact that all four banks had asked for the bill of lading and that after Ms Leung had put the query through to Li, the letters of credit were in this case issued without a requirement for a bill of lading. In this regard he asked whether Li might have persuaded the officers to issue the letters of credit even though they know that these were mere cash flow measures, or whether the bank officers had perhaps been bribed, suggesting that the whole Guangnan affairs was redolent with overtones of corruption. He said that given Guangnan's financial standing and its political connections it may well be that the letters of credit were issued for commercial considerations, the banks knowing full well that, or not caring whether, there were no goods. He said that the evidence showed that the banks earned substantial interest on the trust receipts that mirrored the issue of the letters of credit; and that some of the sums advanced on the letters of credit had been repaid, and that negotiations were proceedings in respect of payment of the others. No title documents were produced to the banks even though the trust receipts issued by them to Guangnan said that they were issued in consideration of title documents.

14.The speech went on to address other issues such as the question whether the applicant was necessarily party to any fraud upon which Li may have been engaged. He put to the jury also that the applicant was but one of many who had been used by Guangnan and its subsidiaries in schemes of this type.

Judge and jury

15.On 5 February 2002, the judge delivered his summing up. In that summing up the judge defined the word "defraud", and then gave the two pronged Ghosh direction about the elements that needed to be proved to establish dishonesty. That was a direction given again later in the summing up (page 39). He then told the jury (page 37) that there were five questions which they needed to ask:

(1) Was there an agreement between Li and the applicant?

(2) Did others join in that agreement?

(3) Was it an agreement to do the deeds alleged in the counts on the indictment?

(4) Was the defendant dishonest by agreeing to and [becoming] involved in the doing of the four deeds?

(5) In reaching the agreement was it the defendant's intention to defraud the bank?

16.The jury retired to consider its verdict at 11.23am but in the course of the afternoon, the jury sent to the judge a note, which is relevant to this appeal. The note contained two questions:

"

Q1. Whether the bank is being defrauded? Base[d] on existing evidence we could not come to the conclusion that whether the bank is being defrauded or not? Therefore we would like to have further instruction/guidelines to proceed? e.g. what next questions to be answered?
Q2. If our conclusion is "the bank is not defrauded" then is the count "conspiracy to defraud the bank by dishonest" still valid to be considered. If yes, then what elements should we base on to decide defendant is guilty or not?"

17.In the absence of the jury, the judge canvassed with counsel the answers which he proposed to deliver. No complaint was mounted by Mr Yuen about the proposed direction, although he made one minor suggestion which gives rise to no point in this appeal. The judge delivered the following further direction:

"... At the end, you may think that it is a repetition of what I have said earlier, but at least maybe it would help you to focus on this matter, and I have to add that these further instructions or directions is to supplement and not to replace my earlier directions to you.

First: The basic point is that whether the bank was actually defrauded is not an element of the offence. The element is whether the defendant had the intention to defraud the banks when he entered into the agreement and submitted the documents in pursuance of the agreement.

If he had the intention to defraud the banks at the time, then it would be immaterial that the banks were not defrauded in the end. There was still the offence of conspiracy to defraud if dishonesty was also proved.

Two: If you find that the defendant had no intention to defraud the banks at all, the you to acquit him of the charges because this basic element of the offence was not proved.

Three: If the banks were defrauded because they did not really care whether there was a genuine transaction behind the letters of credit and the TR loans, and the defendant knew or expected or believed that would be the case when he entered into the agreement and in submitting the documents to the bank, then the question would be whether the defendant was acting dishonestly at all.

If he was not being dishonest, then you would have to acquit because this basic element was not proved, but if he had conspired with the named persons to defraud the bank by dishonest means as stated in the charges, then he would be guilty of the offence or offences.

Four: You will remember, members of the jury, I had earlier suggested to you the five questions for you to go through. That may assist you to reach your decision.

Now, these are the further directions I am giving at this stage. If you think that you require further directions, do not hesitate to do the same, by writing the questions down, hand it over to the court assistant, and we will do this exercise again. Thank you very much. Could you please now resume your deliberation." (Tr pp 46-47)

18.At 8.52 pm, there was a further note from the jury. This was in the form of two questions followed by a diagram which depicted suggested consequential issues or questions. Omitting the diagrammatic form, the questions were as follows:

"Require clarification if the judge misunderstood the question just now. -

Q1: Does it need to consider whether there was any agreement by the bank and Guangnan?

Q2: If there were a commercial agreement between Guangnan and the bank ("commercial agreement") → Still accepted Guangnan's applications for letters of credit despite knowing that there were no transactions of goods → whether deceiving the bank is established → [if] not established → whether conspiracy to defraud is established → if ... the bank is defraud is not the element of the offence → intention to what?"

19.Yet again, and quite appropriately, the judge told counsel, in the absence of the jury, how he proposed to answer the questions and there was discussion. The jury returned and the judge gave the following directions:

"Members of the jury, thank you very much again for the question or series of questions.

First of all, on the bracket about the judge may have misunderstood the questions, I can only say this. If I have misunderstood your questions, I will apologise to you and you are entitled to ask questions again on matters that you are not sure of, so that if there are such questions to be asked again, I, with the assistance of counsel, would try to help you as much as we could.

Now, your first question is this. 'Whether you need to consider there was an agreement between Guangnan and the banks?' The simple and direct answer will be 'Yes'. They have the general facility agreements between them and the banking officers had testified about them. It was based on the facility agreements that Guangnan applied to the banks for the letters of credit, and having granted the letters of credit and the trust receipt loans, there were also the agreements that Guangnan was holding the goods on behalf of the banks. These arrangements were part of the deal with the banks for the issuing of letters of credit and the loans and this is part of the background facts you need to consider.

Now, I will come to the second question. Now, you have made an assumption in question 2, and followed that up with a number of other questions. The assumption you made was this. There was a what you call commercial agreement between Guangnan and the banks that even when the banks know there was no real transaction of goods they would still grant Guangnan's applications for letters of credit. And based on this you ask whether the defrauding of the bank could still be established, and if not, then could the element of conspiracy to defraud be established? But then you also raised the question as to how it is relevant that I had told you earlier that whether the bank was actually defrauded was not an element of the offence?

Members of the jury, if your assumption is correct, that is the bank of Guangnan has special arrangements or agreements, that even if there was no real transaction of goods they would still grant the letters of credit, then, of course, the banks would not and could not be defrauded. They could not be defrauded if they know that there was no goods and they still grant the letter of credit.

On the basis of that assumption, then the conspiracy to defraud could not be established also, because if Guangnan and the bank has such an agreement, Li Min should know about it, then, when he and the defendant agreed to make the letter of credit applications there could not be any intention to defraud because the banks expected or knew that there was no goods in these transactions.

In that case, although I said that the actual defrauding of the bank is not an element of the offence, the position would be there cannot be any intention to defraud happening based on your assumption. So there could not be a conspiracy to defraud, and the elements of the offence could not be established.

The above is based again, I say, on the premises of the special commercial agreement you assumed to exist in the question. However, members of the jury, I need to remind you this: is there evidence to prove the existence of such a special commercial agreement between Guangnan and all the banks? If there were such agreements, should the bank officers called to testify know about it? Is it the case that their evidence seemed to suggest the contrary?

Of course, whether you accept their evidence is a matter for you, but you must base your decision on evidence and proper inferences to be drawn from the evidence.

Perhaps I can re-encapsulate the central issues for you here. You may consider the following questions. Was the defendant a party to an agreement with Li Min and the others to present false documents to the banks so that the banks would be misled into thinking that there was a genuine transaction between Guangnan and Connection, and, as a result, that, they, the banks, were willing to finance the transaction by means of letters of credit?

Furthermore, did the defendant know or believe that the documents he presented to the banks, namely the invoices and the cargo receipts, were actually false? If the defendant thought that he was involved in a genuine transaction, then he could not be acting dishonestly. If that is so, he could not be guilty of any conspiracy to defraud.

However, if he knew that there was no real transactions involved and the documents he presented were false, and they were put forward to mislead the bank, then you may think that the defendant was acting dishonestly with the intention to defraud the banks, and hence, he would be guilty of the offence of conspiracy to defraud by dishonest means.

If that was not the case, then the defendant had not conspired to defraud the banks and therefore not guilty of the offences.

Finally, you raised the question about - 'intention to what?' Members of the jury, in the context of this trial, the only relevant intention is the intention to defraud the bank.

I hope that has dealt with your questions, and these further directions will serve to supplement what I have already directed you previously." (Tr pp 53G-55D)

20.The direction having been delivered, the jury left at 9.21 pm.

21.The verdict was delivered shortly thereafter, that is, at 9.57 pm; and by a majority of 5-2 the applicant was convicted on each of the four counts.

The Grounds of Appeal

22.There are no fewer than eleven grounds of appeal in the perfected grounds which were proposed in relation to conviction but, as Mr Yuen has recognised in his oral submissions, some rather overlap. We shall attempt to distil their essence. But before we turn to them specifically, it is convenient to explain what lies at the heart of the defence case, both at trial and upon appeal.

(1) The key contention

23.At the heart of the case is the suggestion that the banks were not in fact defrauded. The basis upon which that is put is the suggestion that not only was there insufficient evidence that the banks would not have issued the letters of credit had they known that there were no goods underlying the applications but that, to the contrary, there was evidence that the credit was, in each case, extended on the basis of some special commercial arrangement made between each bank and Guangnan, an arrangement by which the banks were content to extend credit knowing that, or not caring whether, there was no genuine underlying contract, content to look to the supposed good financial standing of a group as large as Guangnan as sufficient security for the advance.

24.In support of this suggestion, Mr Yuen, both in the court below as well as to this Court, pointed to the testimony of Ms Leung that all four banks had asked about the absence of any stipulation in the applications that bills of lading be presented for payment under the letter of credit; as well as evidence from those called from each bank to the effect that the source of security to which the banks looked was the group's general assets and not the goods, and that trust receipts were issued without any documents of title to underpin the declaration of trusts constituted thereby.

25.There is about this entire approach a significant degree of artificiality, and it seems that at trial it was an artificiality that was used to some effect. It was only slightly less artificial than the suggestion that was also floated that the bank officers may have been bribed, the suggestion being that had they been bribed, no-one would have been defrauded, a submission which, as we have intimated earlier, sits ill with established law. There was in any event no evidential basis for that contention.

26.The suggestion that the evidential basis for the presence of a commercial agreement which recognised underlying contracts as irrelevant, emerged from the absence of bills of lading and from the questions asked by the banks about that absence. By the point is wholly empty as soon as one appreciates that the transactions said to have been at the root of the letter of credit applications in this case were all transactions for local delivery of goods, so that no question of bills of lading arose. As one of the banking witnesses said:

"... in this particular case as it's a local acceptance case we do not have those kind of title documents ... but a cargo receipt will do. Its equal to saying that the customer ... has already taken delivery of goods .... Therefore we require the LC applicant to sign the trust receipt to show that they are in possession of the goods on trust for the bank" (Tr p 392M-Q).

The evidence was that had the cargo receipt not been produced the funds under the letters of credit would not have been released (see page 380E).

27.As for the banks looking to the general assets of the applicant as security, that evidence has to be read in proper context. It must be recalled that the evidence of each bank officer was - and we suggest that it accords with common sense - that the banks would simply not have extended approval for the letter of credit applications had they known that there was no underlying transaction. When, in one form or another, they said that they looked to the general assets of Guangnan as security it seems obvious to us that the true thrust of such evidence was that the assets of Guangnan formed a primary basis for the extension of credit; yet that is not to say that the presence or absence of goods was neither here nor there. It would be odd indeed to require the signing of a trust receipt if there was no intention to rely, if only in part, on the value of goods as security for the loan. Similarly, one has to wonder why any bank would make an advance via a letter of credit operation, rather than through some more direct arrangement, if it knew full well that the arrangement was based upon a bogus contract.

28.One notes, too, that it was never put to any of the bankers that there had been some special commercial arrangement not requiring assurance of an underlying contract. The suggestion that there was no point in doing so since these officers were not the ones who themselves approved the applications is a hollow suggestion given that one would have expected that in the course of their duties those who approved the loans would have recorded whatever special arrangement or condition there may have been.

29.One notes, as well, that the applicant, whether in his interview with the ICAC or in his testimony, never suggested some underlying agreement with the banks. One might have expected him, at least by the time of his testimony, to know of such an arrangement had it existed. There was no suggestion that that is what he was told by anyone. If there was some special and legitimate arrangement - and the tenor of the proposition is that such an arrangement would have been made for perfectly legitimate reasons - one cannot understand why it would have been hidden from the applicant. Not only is there is no evidential support for the theory, but it sits ill with all probabilities. It amounts to a contention that four entirely separate banks were each content to advance in excess of US2.5 million on the basis of applications the truth of which concerned them not one jot; knowing, or caring not, that the contracts were bogus, that there were no goods underlying them, that the cargo receipts were false, and that the very reason for their issue was the fact that the applicant, or its subsidiary in Hong Kong, was short of cash.

30.The edifice upon which this appeal is based is, in truth, pure theory, with no realistic substance. This is the context in which the appeal grounds are launched.

31.The first five of the written perfected grounds are directed at the manner in which the judge dealt with the jury's questions after their initial retirement and in particular with the issue of the commercial agreement, if one had been made, between Guangnan and the banks.

(2) Defrauding as a condition precedent

32.First, there is a complaint that in so far as the judge told the jury that conspiracy to defraud could be established even if the banks had not been defrauded, he erred. The basis of this contention, first, is that counsel for the prosecution, in his address to the jury, presented the prosecution's case on the footing that there was first to be established the fact that the banks were defrauded and then only that there was a conspiracy, a conspiracy to be inferred from the fact of loss or detriment to the banks.

33.The judge evidently did not agree that, as a matter of law, this was correct. He took the view that what mattered was the conspiracy itself and the fact, if it was a fact, that at the end of the day the banks were not defrauded, was not conclusive of the matter. He directed them that to establish the offence of conspiracy, it was not necessary to prove that the crime which was the object of the conspiracy was in fact carried out. As a matter of law this was correct. What he said in the summing up was this:

" Members of the jury, you will remember that I said earlier that even if the bank was not defrauded in the end, it does not necessarily mean that the defendant must be acquitted of any of the relevant counts. This is because, as I said earlier, in the charge of conspiracy it is the intention to defraud that is material. But in practical terms, as the prosecution has sought to rely on the whole transaction to prove the terms of the agreement of the conspiracy, you could not, in all fairness, ignore the point if you find that the banks, or any of one of them, was actually not defrauded at all.

Now, if you find that the bank was not defrauded, because the bank did not really care, for whatever reason, whether there was a genuine underlying transaction for the letter of credit, and that the defendant knew or expected or believed that was the case when he made the agreement and submitted the documents to the bank, then the issue would be whether the prosecution had successfully proved the element of dishonesty at all. If the element of dishonesty is not proved, then the defendant must be acquitted.

Of course, even if you are satisfied that the bank was defrauded, you still have to consider the issue of dishonesty." (Tr p 38E-O)

34.Whatever stand the prosecution took, and it may well be that it was the simplest way to approach the case, the judge was not precluded from directing the jury upon a correct approach and that is what he did. The approach which he adopted cannot be said to have been inaccurate in law, and there was no misdirection. Not long after the direction which we have just cited, he reminded the jury in terms of the five questions which the jury had to address before they could return a verdict of guilty in respect of anyone count, and it seems to us that those were indeed the central questions which the jury had to ask and answer.

35.It was said by Mr Yuen, in his argument before us, that, absent proof that the banks were in fact defrauded, and absent the testimony of those who themselves approved the facilities, there was no sufficient evidence to show a conspiracy to defraud. We do not agree. Let us look only at the matters that were not in issue:

(1) The applicant signed contracts which he knew were bogus, in the sense that there was never a question of Connection selling goods to Shun Wing or to Guangnan.
(2) In his interviews with the ICAC the applicant spoke regularly of the transactions represented by the letters of credit as a 'pretence'.
(3) He told the ICAC officers that the reason Shun Wing wanted to use this method was for Shun Wing's purpose, and that that purpose was to raise cash.
(4) The applicant was a businessman already versed in letters of credit as a means of trade.
(5) The applicant prepared invoices which he knew to be false.
(6) The applicant prepared packing documents which he knew to be false.
(7) The applicant was told of cargo receipts which he knew to be false.
(8) The applicant caused monies' which had been paid to his company under the letters of credit, to be remitted at once to the applicant for those letters of credit.
(9) The applicant never mentioned to the ICAC that his intention was assist Shun Wing in circumventing regulations against allied company trading, nor had he suggested to them that he was acting as a middleman.
(10) There is no documentary evidence of any contract between Guangnan and Shun Wing.
(11) The applicant accepted in his interviews with the ICAC that the banks may have been misled.

36.There appeared to be some suggestion in the written submissions that a conspiracy cannot amount to a criminal conspiracy unless in its execution a crime would have resulted. If this is the submission, its purpose is to suggest that, absent proof that the banks were in fact defrauded, no conspiracy to defraud can be established. This submission confuses two concepts. It is true that the object of a conspiracy is conduct which, if carried out, will constitute a substantive offence. The conspiracy is concluded and is criminal in its nature so soon as that agreement is formed, and it matters not that in the event something intervenes to preclude the commission of the substantive crime, whether it be the conduct of the proposed victim or the acts of the conspirators in resiling from the proposed course of conduct. That is quite different from an agreement the objective of which, if fulfilled, could not in any event be a criminal offence.

(3) Alleged conflicting directions

37.Secondly, it is said that the judge's directions were confusing. The judge had told the jury that the relevance of proving that the banks had in fact been defrauded was that it was a fact from which a conspiracy might be inferred; yet he told them also that in a way it mattered not whether it was proved that the banks were in fact defrauded. There is no conflict here. All that the judge was saying was that proof of an effected fraud was not a condition precedent to proof of a conspiracy but that if, nonetheless, fraud were proved, it might assist in demonstrating the prior conspiracy. That is perfectly logical.

(4) The first set of questions

38.Thirdly, there is complaint about the directions given in response to the first set of jury questions. The complaint is that the judge did not address, or address with sufficient clarity, the essence of the defence case and the point which Mr Yuen says was self-evidently troubling the jury, namely, the course to take if there had been shown a commercial agreement whereby the banks did not really care whether the goods existed or not. The judge should have told the jury, it is said, that there then could be no conspiracy. It is further said that the directions which the judge gave that it was immaterial that the banks were not defrauded, if that was the case, so long as the requisite conspiracy was proved, conflicted with the direction which he later gave that the conspiracy could not be established if there was a commercial agreement, because Li was in such circumstances bound to know about it, and there could then be no intention to defraud.

39.It is important to read the words which the judge actually used. The words "in the end" in relation to whether the banks were defrauded show that the judge was repeating his direction, which was correct, that a conspiracy could be established even if at the end of the day the planned fraud did not eventuate or succeed. It is also relevant to note the judge's specific reminder in this response to their questions of the five key points which had to be proved, and to which we refer at [15] above.

40.However, in relation to this set of directions we were concerned by the judge's direction that if the applicant knew or believed that the banks did not care whether there was a genuine transaction or not, the next question was whether he was being dishonest. It is difficult to see how dishonesty could realistically remain a live issue if it were shown that the banks did not care whether there were goods and the applicant knew of the bank's attitude. In the event, we are satisfied that the safety of the verdicts was not thereby affected, for the jury was still left to address the essential question of dishonesty and the key five questions which the judge had put, and the later directions, those in response to the second set of questions, to which we shall shortly turn, made the correct position clear in any event. Furthermore, we note that the judge had rehearsed this proposed direction in its very terms with counsel and no issue was taken with the proposed directions. Indeed, Mr Yuen said to the judge that:

"I think the three or four points you have raised would sufficiently deal with the two questions [of the jury]." (Tr p 46F)

(5) The second set of questions

41.In relation to the directions given by the judge in answer to the second set of questions from the jury, it is suggested that the questions evidenced a finding by the jury that there had in fact been a commercial understanding between Guangnan and the banks. We do not think that that is necessarily so at all. The jury did not say that that was a conclusion to which they had come. The question in which commercial agreement was mentioned was prefaced by the word "if". One sees that the eventual verdict was a conviction by five votes to two, and it is perfectly possible that the question of a supposed commercial agreement was one that attracted the attention of one or more of the jurors, and there was an attempt at that stage to see if there might be unanimity. The fact is that no one knows what was at the root of the question, but one does know that it did not spell a conclusion that there was such an agreement. Indeed, it would have been surprising if this jury, properly following the evidence, would have come to such a conclusion.

42.Then it is said that it was unfair for the judge to say that their question was based upon an assumption, and to query or debate whether there was evidence of a special commercial arrangement. In our judgment, and for reasons which we have already provided, the judge's comments were perfectly sensible.

43.It is further argued that the directions in response to the first set of questions were inconsistent with those in response to the second, in that the effect of the first was that there could be a conviction in the absence of proof that the banks were in fact defrauded whereas the effect of the second was that there could not.

44.The thrust of the two sets of questions was different. The thrust of the first set seems, on its face, to have been whether proof that the banks had in fact been defrauded was a condition precedent to guilt of conspiracy; whereas the thrust of the second was directed at the suggestion that there had in fact been some sort of actual agreement to which the banks were party. If there had been an actual agreement of the type canvassed, then, as the judge rightly concluded, it was difficult to see how Li would not have been party to that agreement, and so proof of a conspiracy to which he was party would be impossible. We do not think that the judge was wrong to direct the jury as he did on each occasion, and we note as well that there was no suggestion at the time that the proposed second direction was inconsistent or that the jury might thereby be confused. The second part of the direction was favourable to the applicant, and there can in the event be no valid complaint.

(6) 'Defraud'

45.At page 9 of the summing up the judge said this:

"Now I shall deal with the meaning of 'defraud'. Members of the jury, to defraud is dishonestly to prejudice or to take the risk of prejudicing another's rights, knowing that you have no right to do so. It does not really matter whether loss is caused in fact or not. The essence of conspiracy to defraud lies in a dishonest subjecting of another person's property to the unwarranted pecuniary or economic risk by the conspirators, and knowingly, they take the risk where there was no right to take it." (Tr p 9O-S)

46.Mr Yuen argues that this was a defective direction in that the risk to which the direction should have been aimed was the risk to the victim of economic loss, and not the risk undertaken by the conspirators. The suggestion of risk taking on the part of conspirators is not erroneous as a constituent element of the offence since:

"It seems probable that there need be no intention to cause loss, or to cause another to commit a breach of his public duty if the defendant has behaved recklessly in these respects. Actual foresight that loss will occur is no doubt sufficient. Is proof of such a state of mind necessary? It was established at common law that mere negligence was insufficient. Foresight of a real possibility that harm may be caused is probably sufficient. This appears to have been the state of mind of the defendant in Wai Yu-tsang v. R. [1992] 1 AC 269 where the defendant, a chief accountant of a collapsing bank manipulated the accounts (with the connivance of the managing director) in such a way as to give a false financial picture of the bank's affairs. He was convicted of conspiring to defraud the bank and its existing and potential shareholders, creditors and depositors. The Privy Council held that it was sufficient that the conspirators had dishonestly agreed to bring about a state of affairs which they realised would or might deceive the victim into so acting or failing to act that he would suffer economic loss or his economic interests would be put at risk. The mere fact that, as in this case, there was a benign motive in that he did not wish the victims to suffer any harm would not of itself prevent the agreement from constituting a conspiracy to defraud." See "Property Offences" Professor ATH Smith, para 19-30)

It can thus be seen that there are in fact two elements of risk that can come into the equation: risk in the sense of recklessness by the conspirators, and risk to the economic interests of the victim. The judge no doubt had in mind the encapsulation suggested by Archbold Criminal Pleading Evidence & Practice 2003 at para 17-62:

"'To defraud' or to act 'fraudulently 'is dishonestly to prejudice or to take the risk of prejudicing another's right, knowing that you have no right to do so: Welham v. DPP [1961] A.C. 103, HL."

At root, the key to the issue is that of dishonesty, a factor mentioned by the judge in the passage of which complaint is made. We do not in the circumstances agree that the judge erred.

(7) The missing bank officers

47.Finally, it is said that the judge failed adequately to direct the jury about the consequences of an absence of evidence from the bank officers who actually approved the loan.

48.What the judge did was to remind the jury on several occasions of the fact that these officers were not called to testify, of the points which the defence made in the light of their absence, and of the approach which the prosecution took in response to those points. In essence he said that there was indeed this gap, and that the defence sought to show as a result that there arose a number of possibilities - those we have already listed: the possibility of bribery, the possibility of a special commercial arrangement and so on. He then said this:

" Members of the jury, you may think that this possibility of bribery is not really a relevant consideration here and it appears to have no evidential basis. However, it is true that the officers who were involved in the actual approval of the four letters of credit were not called to testify. Members of the jury, there was no information before you as to why those officers were not called, you should not speculate the reasons. But does it mean that in the absence of such evidence the prosecution must have failed to prove the bank was being defrauded?

Members of the jury, the bank officers who were questioned about the letters of credit facility all testified that if the bank knew, of course through its officers, that the underlying transaction was a fictitious one, the letter of credit would not be granted. Hence, could it be the case that for the Guangnan letter of credit, the bank would take a totally different stand? In a way, whether the bank was defrauded, was not material to these charges of conspiracy. You will recall that the crime of conspiracy is an offence concerning agreement. The offence takes place when there is an agreement to commit the crime with the intention to defraud the bank by dishonest means.

The prosecution have produced evidence of the whole transactions to prove the existence of the conspiracy, and they also relied on the conduct of the parties in carrying out the conspiracy to prove the terms and the particulars of the conspiracy. In this regard, whether the bank was actually defrauded would be one matter to consider against the whole background. But even if the bank was not defrauded, it could not be immediately concluded that the defendant must be acquitted. If the bank was not defrauded, then it just means that you may have more difficulties in drawing the inference that there was a conspiracy to defraud the bank, particularly on the issue of dishonesty." (Tr p 34D-U)

So, what the judge did was to remind the jury of the absence of these witnesses; and then asked them to contemplate the likelihood of four separate banks departing from the firm practices to which each of the four bank officers who did give evidence attested, and told them that in any event the prosecution relied on all the evidence, not just those of the banking officials, to prove the conspiracy, evidence which included the applicant's own interviews with the ICAC. These directions, as we read them, were logical and in our view illustrate no material misdirection or omission.

Conviction: Conclusion

49.In this case we shall grant the applicant leave to appeal, and treat the hearing of the application as the appeal. However for the reasons we have provided, the appeal against conviction in the case of each offence is dismissed.

Sentence

50.The sums obtained as a result of the issue of the four letters of credit amounted to US$11.814 million, which is approximately HK$92 million, although at the date of trial the amounts due on the first two letters of credit had pursuant to a restructuring exercise, been repaid, namely, US$5.544 million or about HK$43 million.

51.In sentencing the applicant, the judge noted the active steps which the applicant had taken to assist Li, the preparation of false invoices and the presentation of the letters of credit and cargo receipts, the transmission of monies to Shun Wing, and the percentage obtained by the applicant, namely, a total of about HK$110,000. He noted that the applicant was a person of previous good character, but in view of the amounts involved, the judge took a starting point of six years' imprisonment on each count and imposed a total of eight years by ordering the sentences in respect of the third and fourth counts to run concurrently with each other but consecutively to the six year terms imposed in respect of Counts 1 and 2.

52.Mr Yuen draws our attention to events since sentence. As a result of the restructuring exercise, significant further satisfaction of debts owed to banks by Guangnan have been effected. Whereas at the time of trial none of the sums due in this case to HSBC or Societé Generale had been repaid, the position now is that, of Guangnan's debts to these two banks, (which include the debts in this case) 65% has been repaid in cash and there has been an accommodation as to the balance whereby shares have been transferred. The banks have been coy about releasing details of that accommodation, and we think it right in the circumstances to treat the debts outstanding in respect of all the letters of credit in this case as having been discharged. Some adjustment to sentence is therefore warranted, though not a great deal on this account, given that the loss has been reserved by efforts in which the applicant has had no part at all.

53.Mr Yuen says also that the terms of imprisonment imposed are in themselves manifestly excessive given, in particular, the fact that the applicant was not the instigator of these offences. He points to the fact, now well known to this Court, that Guangnan or its subsidiaries were engaged on a large scale in letter of credit frauds using small businesses to assist in the pretence of bogus transactions. He refers to a case with which this Court was recently concerned, HKSAR v Cheng Sui-wa Criminal Appeal 223 of 2001, 17 September 2003, unreported, in which similar amounts were involved but where the judge imposed a sentence of only four years' imprisonment upon an accomplice business used in much the same way as was this applicant, with a further five years' imprisonment for amounts obtained through another scheme which the accomplice himself instigated, a total of nine years' imprisonment, reduced by the Court of Appeal to a total of eight years because sums had since been repaid. The difference between that case and this is that there were two quite separate scams in that case, in one of which the applicant was the instigator on behalf of his own company, and the sentence imposed by the judge for the offences which assisted Guangnan (the first four counts) was only one of fours years' imprisonment. The amounts involved in those first four counts amounted to about HK$61 million, and we have to say that the penalty imposed there was light for those four offences. Perhaps the judge was prepared to take that stance given the overall result. The total sum obtained in that case was HK$120 million.

54.Whilst Mr Turnbull correctly says that other cases are of little use, one cannot ignore the fact that Cheng Sui-wa dealt with a Guangnan fraud of precisely the nature of this case, and that the applicant was in much the same position as the applicant in that case. The total sentence there was one of eight years' imprisonment after appeal with the following aggravating factors: the fact that the sum involved was significantly higher in that case than in this case, and the fact that in relation to five of the counts the applicant had there instigated his own scheme of deceit. We think in the circumstances of this case that the correct sentence is one of six and a half years' imprisonment.

55.Accordingly, we shall grant the applicant leave to appeal against sentence and, treating the hearing of the application as the appeal, we shall allow the appeal to the following extent: the sentence in respect of each count will be one of five years' imprisonment to run concurrently save that the sentences in respect of Counts 3 and 4 will run consecutively to those imposed on Counts 1 and 2 to the extent of 18 months making a total of six years and six months' imprisonment.

(M. Stuart-Moore) (Frank Stock) (A.R. Suffiad)
Vice-President Justice of Appeal Judge of the
Court of First Instance

Representation:

Mr Bernard Yuen, instructed by Messrs Herman H.M. Hui & Co. for the Applicant

Mr R G Turnbull, SADPP and Mr Richard Ma, GC of the Department of Justice for the Respondent